Pension liberation brings anything but freedom

Money in hand The word 'liberation' invokes positive feelings about freedom so it's ironic that pension liberation leaves people in a situation that is far from free.

In fact pension liberation, which is a way of accessing your pension savings before age 55, will actually leave you chained a huge tax bill of up to 55% of your pension pot.

Pension liberation has come under scrutiny thanks to a multi-agency clampdown, court cases, and a 'predators stalk your pension' awareness campaign from regulators warning people about the dangers of pension liberation.

There is plenty of news out there about it and if you Google 'release pension' or some such phrase you will see that HM Revenue & Customs and regulators appear at the top of your search with warning to steer clear of these scheme, but still people use them.

They use them because they are desperate and they use them because they are unaware, or more likely have been mis-led, into thinking that accessing their pension early will have no consequences other than having less cash in retirement.

So what's the solution? There are two ways in which pension liberation could be dealt with. The first would be to make it illegal. Currently it is not illegal to take your pension money early but you must pay a hefty tax penalty for doing so.

The pension liberation scheme transfers your pension to its 'workplace' pension and then gives you a loan but there is no requirement for you to have worked for the company offering the pension or have ever been remunerated by them. If we closed down on this loophole it may help and make it the law that you cannot transfer to a pension scheme unless you have worked for the company.

The second way to deal with it is for HMRC to take control of the situation and allow early access to part of a pension fund. This is an idea that has been bandied around for years as a way to help people on to the property ladder, encourage saving etc. By placing new rules around accessing a percentage of a pension early, for a tax charge because we don't want people to rip all their money out of their pension early, it would prevent people being hoodwinked by unscrupulous companies.

Regulation isn't popular but surely it is the lesser of two evils where pension liberation schemes are concerned.

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Pension liberation brings anything but freedom
Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship. Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so. To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension. In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.
Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.

The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.

Around 427,000 households in the over-70 age groups are either three months behind with a debt repayment or subject to some form of debt action such as insolvency, according to the Consumer Credit Counselling Service (CCCS).

Its figures also show that those aged 60 or older who came to the CCCS for help last year owed an average of £22,330. Whether you are retired or not, the best way to tackle debt problems is head on.

Free counselling services from the likes of CCCS and Citizens Advice can help with budgeting and dealing with creditors.

Importantly, they can also conduct a welfare benefits check to make sure you are receiving the pension credit, housing and council tax benefits, attendance and disability living allowances you are entitled to.

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The average UK pensioner household faces a £111,400 tax bill in retirement as increasing longevity means pensioners are living on average up to 19 years past the age of 65, according to figures from MetLife. And every year in retirement adds an extra £5,864 in direct and indirect taxes based on current tax rates to the costs for the average pensioner household. You can be forced to go bankrupt if you fail to pay your taxes, so it is vital to factor these costs into your retirement planning.It is also important to check that you are receiving all the benefits and tax breaks you are entitled to if you want to make the most of your retirement cash.

The cost of a room in a care home in many parts of the country is now over £30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than £35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: "For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap." However, the only other answer is to save more while you can.
Older Britons are often targeted by unscrupulous criminals - especially if they have a bit of money put away. For example, many over 50s were victims of the so-called courier scam that tricked into keying their pin numbers into their phones and handing their cards to "couriers" who visited their homes. It parted consumers from £1.5 million in under two years. Detective Chief Inspector Paul Barnard, head of the bank sponsored dedicated cheque and plastic crime unit (DCPCU), said: "Many of us feel confident that we can spot fraudsters, but this type of crime can be sophisticated and could happen to anyone." The same is true of boiler room scams that target wealthier Britons with money to invest, offering "once-in-a-lifetime" opportunities to snap up shares at bargain prices. Tactics to watch out for include cold calling, putting you under pressure to pay up or lose the opportunity for good, and claiming to have insider information that they are prepared to share with you.
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